During an audit of the inventory records of Winthrop Ltd for the year ended 30 June 2016,

Question:

During an audit of the inventory records of Winthrop Ltd for the year ended 30 June 2016, the auditor discovered that the ending inventory balance was overvalued by $36 000. On further investigation, it was discovered as well that the ending inventory for the previous year was correctly counted and valued, but that the inventory balance as at 30 June 2014 was undervalued by $100 000. Spurred on by the concern for errors undetected in previous periods, a thorough investigation was carried out as to the inventory values shown in the company’s financial statements during its 5-year history. The following additional errors were detected:

1. As at 30 June 2013, inventory was overvalued by $10 000.

2. As at 30 June 2012, inventory was undervalued by $60 000.

Required

A. Determine the effects that these errors have had on the company’s profit figures in each year, beginning in the year ended 30 June 2012.

B. Determine the effect of the inventory errors on the company’s balance sheet over the total time period. Include in your answer the cumulative impact on the company’s retained earnings.

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...

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